Egan-Jones Cuts U.S. Rating to AA+ on Spending-Cut Concern

Egan-Jones Ratings Co. cut its rating on the U.S. by one step to AA+ from AAA, citing the high level of debt outstanding relative to other countries and concern that politicians may fail to reduce spending.

“The major factor driving credit quality is the relatively high level of debt and the difficulty in significantly cutting spending,” the firm said July 16 in a report. Egan-Jones placed the U.S. on negative watch on March 1.

Republicans are using talks to increase the $14.3 trillion debt-ceiling to press for cuts in spending. Treasury Secretary Timothy F. Geithner has said the government, which reached its borrowing limit on May 16, will run out of options to prevent a default on Aug. 2. The most likely outcome of the negotiations is that the federal government will fail to reduce its debt to gross domestic product “in any sort of meaningful fashion,” said Sean Egan, president of Egan-Jones in Haverford, Pennsylvania.

“We’ll muddle along, we won’t decrease the debt to GDP,” Egan said today on Bloomberg Television’s “Street Smart” with Carol Massar. “Then we’ll be faced with the crushing blow of the baby boomers retiring.”

Moody’s Investors Service and Standard & Poor’s have put the U.S. debt rating on review for downgrade.

--Editors: Paul Cox, Dave Liedtka

To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net